4. Empirical results
At 5 per cent significance level, the result of KPSS test indicates that all the estimated variables are non-stationary at level, but it is stationary after first differencing. This implies that real income per capita (LEG) and electricity consumption per capita (LEC) are integrated of order one, I(1) process. These results are consistent with the notion that most of the macroeconomic variables are non-stationary at level, but become stationary after first differencingWith this finding we can proceed with the ECM-based F-test for cointegration. A common practice in performing ECM-based F-test for cointegration is to determine the optimal lag order. The SBC statistic indicates that ARDL(9, 5) is the best lag orders combination and the estimation outputs are reported in Table 3. Batteries of diagnostic tests were performed on the final ARDL model. In particular, the Ramsey RESET test failed to reject the null hypothesis of no general specification error. Thus, the model is free from specification error. The Breusch–Godfrey LM test exhibited that the residuals are not serially correlated. Unfortunately, the plot of CUSUM of Squares statistic crossed the 5 per cent critical bounds (see Fig. 2). Thus, the estimated coefficients are not stable over the period of 1986–1995. The rapid expansionary of export-orientated and manufacturing industries in Malaysia since 1980s may be the plausible explanation of this structural break. This is also in line with Malaysian government policy to attract more influx of foreign direct investment into high-technology manufacturing sectors. Thus, the electricity consumption in Malaysia may grow rapidly and hence caused this structural break.